Tuesday, December 16, 2008

We'll All Be Paying for Harper's Rancid Ideology Soon, Very Soon

I was surprised when Harper/Flaherty birthed the 40-year/zero equity mortgage in their 2006 budget. I couldn't understand why they would do that when America was being wracked by a massive housing bubble.

Granted, I might know a bit more about housing bubbles than those guys. I've logged weeks in various courtrooms clearing up the aftermath of housing bubbles right here in British Columbia but none of them compared with the madness that was nearing its inevitable collapse south of the line when Harper took office.

It's not as though there wasn't clear warning of the storm heading for America's burbs. At the time, however, the rightwing power brokers were too busy slagging Paul Krugman as a "looney leftie" to hear his clear and repeated alarms. Greenspan may now claim it took him by surprise but that's because he chose to look the other way. Apparently so did our rightwing ideologues, Harper and Flaherty.

Housing prices are just beginning a plummet that could turn, over the next two to three years, into something of a freefall. There's going to be a lot of carnage along the way and, among the bodies, you're bound to find those who jumped at the bait when Harper's 40/zero timebomb mortgages hit the market.

If you want to see what's coming, look south. It begins with the worst mortgages and then works into a category of once-solid mortgages. As mortgages go into default it leads to forced or distress sales. That's where it spills over to hit those with small, manageable mortgages or no mortgages at all. One or two foreclosure sales on a street might not be a huge problem. Five, six or more is a different story. Property values tank and even those with clear title houses who need to sell - for retirement or job relocation - can't unload their once prized asset.

I'm furious about it and I'm in the least vulnerable category. Imagine others who got caught being fed a dream that turned, in brief months, into their worst nightmare. Imagine those who've been diligently paying down their mortgages for years and thought they had everything in line only to see their balance sheets shredded.

This is not to say that our housing market wouldn't have tumbled but for the Harper/Flaherty chicanery. The market was overheated even without those voodoo mortgages BUT -

1. It was irresponsible to let 40/zero mortgages on the market and, plainly so by 2006. Harper/Flaherty were following their failed ideology leaving them wilfully blinded to the obvious peril.

2. There was a significant volume of 40/zero Harper/Flaherty boondoggle mortgages and they brought people into the market who bought houses they truly couldn't afford. The Harper/Flaherty 40/zero mortgages created the illusion that people could afford houses, Harper bragged that he was extending home ownership to people who otherwise couldn't get into the market. He didn't understand these people shouldn't be in that market because they're far too vulnerable to downturns.

3. Harper and Flaherty have contributed massively to the problems looming throughout the homeowner spectrum. They've made a predictably bad situation much, much worse and we're all going to pay for that one way or the other.

4. Now I'm getting suspicious that Harper's 75-billion dollar bank bailout was a carefully concealed ploy to bring those 40/zero in house by trading Bank of Canada AAA assets for bogus mortgages held by the banks. We'll probably see how true that is in the coming months.

Harper has shown, yet again, that he's totally unfit to govern. He's effective enough in opposition but a dead loss in power. That's because Harper has no sense of Canada, no real vision, just an ugly, already discredited ideology that he simply can't shake.

I think it's time for the progressive brand to reassert itself in the conservative movement. Either that or show them the door.


Anonymous said...

Should not listen to Garth bud, he's full of shyte.
There is no zero equity mortgages in Canada, CIBC and the Royal tried it but were stopped (was never facilitated by Cons, Harper tightened the restrictions not weakened them, No 60 yr mortgages, and a min 5% down as was the case when he took power.)
In the USA this was facilitated by Carter and Clinton, check it out, it was their legislation that first weakened the requirements then did away with them all together.
Fanny may and Freddy mac are socialist(left) in nature by the way.

WesternGrit said...

"Carter and Clinton" eh? Not even a "Ray-gun" or Bush Senior in-between? Surely he never sat back and said, "no"? Did Dubya Senior say "no"?

As far as the "zero equity" mortgages, that is a LITTLE different than "zero down payment". The zero equity notion WAS bandied about by mortgage brokers whom I know, so I'm not really too sure you are right on that... Seems the brokers were re-selling them from somewhere. Any ideas where?

Sub-Prime Minister Harper and Deficit Jim only changed the laws regarding these kinds of mortgages the week before they called this last snap election...

The Mound of Sound said...

Can you point to anything verifying your account, anon? One of our regular posters, WesternGrit is active in the property development/sale business in the three western provinces and he maintains there were plenty of the zero/40s since 2006.

Actually, your rendition of the American undoing is horribly skewed. It wasn't subprime mortgages that killed the American economy but rather the transformation of bundled mortgages into ABCP or derivatives and the Credit Default Swaps that they in turn spawned. I realize that's an inconvenient reality to inject in your fantasy but - there it is. You can thank Phil Gramm for that, forget Carter. Whoopsie!

Mark Richard Francis said...

I was introduced to zero/40 mortgages just by virtue of living in Toronto, for God's sake. It was everywhere.

Don't you love the logic of these anons? Bush jr. and co. had seven years to act on the issue, and did nothing, but Clinton was supposed to figure it all out...

The Mound of Sound said...

Mark, WG, my sincere appreciation for you weighing in on Anon's claims. As a guy entering retirement in my enclave on Vancouver Island, I'm out of the mainstream these days but I was pretty sure Anon was spinning a line. He had me wondering until he tried to hang the Wall Street meltdown around Jimmy Carter's neck. That alone put his credibility straight in the ditch. Thanks guys, much appreciated.

The Mound of Sound said...

One more point, the American meltdown had virtually nothing to do with Clinton or anything that happened before him. It was the deregulation rammed through by Republican Phil Gramm.

Subprime mortgages were fine so long as the lender was the party that had to hold onto them. Lenders weren't going to make "liar loans" if they had to bear the risk of default. It was only when they were allowed to turn those mortgages into securities and flog away the risk that they would entertain the mad mortgage loans that permeated their industry. Then Phil Gramm pushed through a bill that allowed Wall Street to pump up the sales of these bogus securities thanks to Credit Default Swaps - an insurance commodity that was unregulated, ensuring that the seller was bound not to have the assets to make good the risk insured. Bye, bye Lehman Brothers, bail out for the rest.

What sticks in my craw about these rightwing anons is that they're either ignorant or they choose to block out huge tracts of relevant facts to create the sort of delusion that fixes the blame for this on Jimmy Carter.

The Mound of Sound said...

I just reread the Globe expose on this scam. Before the Harpies finally shut them down, new buyers got $56-billion worth of 40-year term mortgages, $10-billion of those no money down. In other words, Anon is just another Tory hack hoping to raise doubt on the strength of an anonymous, unsubstantiated claim.

WesternGrit said...

Nice find Mound. These clowns just don't quit, do they?